Not satisfied with a $5 million estate tax exemption (until January 1, 2014 anyway) and spousal portability of the exemption, on January 5th Republicans introduced five bills to repeal the estate tax.
For details, see Hani Sarji’s blog posts of January 12 and January 13, 2011.
The federal estate tax is a big issue in many congressional races, with proponents of repeal arguing that it severely impacts family businesses and farms. See this article in the online version of the Wall Street Journal.
What is rarely discussed is that with proper planning, including the use of life insurance, the heavy financial burden of the estate tax can be avoided or drastically reduced. Attorneys fees and life insurance premiums are a lot cheaper than a 55% estate tax. Many family business owners and farmers simply refuse to plan ahead.
This year, of course, there is no federal estate tax. However, many Wills and Trusts drafted in the past contain formula clauses based on the existence of the federal estate and/or generation-skipping transfer tax. These convoluted clauses were generally designed to maximize tax savings.
In 2010 there is no federal estate tax. So what happens if a persons with such a Will or Trust dies this year? How is the formula to be interpreted? Well, recent changes to North Carolina law (N.C.G.S. Sections 31-46.1 and 36C-1-113) help provide certainty in the interpretation of the formula clauses. NC law now provides that the clauses are to be given effect as if the federal estate and generation-skipping transfer taxes law as of December 31, 2009 were in effect.
Executors or trustees, or an affected beneficiary, if they believe the testator would not have intended such a result, may bring a proceeding for a court determination.
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